Life after closing: the essential to living happily ever after

By Ira S. Rosenbloom, CPA

Mergers and acquisitions are much like any other marriage. While the courting and planning are exciting stages, the success of the match comes once the parties are living and functioning together. There is no such thing as a perfect CPA firm merger, but like marriage, some are much happier and more successful than others.

There are three primary types of marriages in the world of public accounting, with different priorities associated with each:

Exit-Oriented

Practitioners who expect to completely retire, after a merger match, need the longest runway to ensure their marriage will be a good one. Their priorities are tied to security: client retention, economic dependability of the successor and stability of professional resources.

Growth-Motivated

Some practitioners see mergers and acquisitions as an important part of their growth formula. Any growth-oriented upside will relate to adding to the top line, increasing market presence and picking up marquee clients. Niche-based acquirers will want to tuck in a practice that can deliver more of the industry or specialty in which they have a niche or niches. Firms with wealth management success, for example, will be attracted to a strong Form 1040 practice to bolster the pool of potential investment clients.

Strategic Mergers

Strategic combinations are the ultra-marriages of practitioner mergers, and they can bring significant operational hurdles. The long-term co-existence of the leadership of both firms and the branding of a new, more forceful business are vital to success. Like any marriage that is strategic in nature, there are many important priorities that need to be addressed, including governance, compensation systems, staff development, quality control, transition/succession, geographic reach, multiple office management, client acceptance, fee platform, financial discipline and vision. Because both parties generally enter into these unions for the long haul, these transactions take more time and are often more complex.

Generally, the parties sitting at the merger table put a great deal of time and thought into the negotiating and vetting process. In order for the vision for the deal to come closer to fruition, here are 15 best practices to help ensure a smooth integration and long-term contentment:

1. Embrace the top clients of each firm. The top 20 clients of the smaller of the two firms should be welcomed personally by the leadership of the new/combined firm. When describing the new organization, it is paramount for the emphasis to be on the upside of the merger or acquisition, for both the clients and the former leaders of the old firm. Convenient accessibility to the old and new regime must be stressed and actualized. Check-in, by either internal marketing staff or outside professionals, should take place every 30 days for the first six months of the combination to confirm satisfaction and to uncover areas that need to be addressed.

2. Unify and, if need be, create job descriptions for each member of the organization. Confusion over performance expectations is common in many mergers. Be clear as to what the daily and career expectations are, and use a cross-section of players from both sides of the table to create or modify the descriptions. The more input the affected parties have, the more buy-in to the change, and the upside of the transaction.

3. Employ a buddy system. Partner your staff with acquisition counterparts and encourage both formal and informal interaction. There will be anxieties on both sides, by most players, so the more easily information can be shared — from mundane issues like codes, passwords, whom to avoid and whom to win over — to the complexities of techniques and policies, the better the outcome in the long run.

4. Implement consistent and transparent time management and cash flow controls. Matters like the common unit of measure (quarter-hour or tenth of a unit) and the frequency of time entry need to be agreed upon. Formatting for bills and statements should be compatible and determined in advance of preparation. A documented series of policies on billing frequency, collection controls and job cut-off is imperative. Full accounts receivable history must be migrated, and an agreement on collection responsibilities and priorities for receipt must be understood as well.

5. Brand and broadcast the expanded/combined firm. The first message issued about the new firm will make a lasting impression, so it is vital to construct a well-planned, thoughtful communication plan for the announcement and the focus of the change. The messages should be consistently imparted, both internally and externally, so there is no conflict of expectations and performance. Media outlets need to be advised of the expansion/combination, and social media and collateral materials should be used to your advantage. The website will need to be updated, and the sequencing for such a conversion should be disciplined and not secretive. In a multi-office situation, signage must be handled, and landlords should be notified. Finally, an ongoing communication strategy should be established and implemented to ensure brand continuity.

6. Develop a milestone calendar. Significant items should be posted by a specific date or by the beginning or end of a month. Items that would commonly be on a milestone calendar include: the switch over for payroll and benefits, announcements, business cards and letterhead updates, notification of malpractice carrier, move date, fit up, evaluation and supervision transition, marketing and social media initiatives (such as brochures, website, LinkedIn, database integration), software integration and training.

7. Align quality control procedures and regimens promptly. The last thing a firm needs is a separate set of rules for one practice, one office or one practitioner, and another set for the rest of the firm. Policies for return review, client acceptance and turn-around time must be hammered out early in the process and complied with across the board. Engagement letter protocols and consistency must be established, and privacy and confidentiality must be addressed.

8. Implement a new client contact program. Relying on an announcement will be inadequate for a comfortable client-relationship conversion. Create a welcome letter to be issued within two weeks of the announcement, and regiment a follow-up outreach plan so that each and every client will be contacted. At a minimum, the welcome letter should introduce key members of the firm, crucial service areas, billing and collection policies and contact information. A client who was a low-level client for the predecessor could be an important one for the successor. Following up and communicating with clients enhances the likelihood of retention and the potential for service growth.

9. Focus on the “friends of the firm.” Both firms have prospered in part because of strong referral sources and advocates. Schedule a social event or events for the centers of influence, and routinely follow up with them during the first six months of the combination.

10. Nurture personnel. Unwanted and untimely personnel departures are a common fall-out of a merger. Synchronizing benefits, compensation and policies are important, but there are often changes for one or both parties. Communicating the changes in a sensitive, businesslike manner will be most productive. Creating contacts for grievances and support during the transition is equally as important as communicating the changes. Scheduling a series of internal focus groups for the post-closing time period will bring important intelligence to management, and reflect the care that management has for the entire team. In addition, a merger is often the right impetus and an ideal time to implement an internal mentoring program.

11. Use clients to create a “one-firm” platform. Utilizing staff from each of the firms to service clients — who were not previously serviced by the originating firm, prior to the combination — will set the stage for a one-firm platform and will allow for bonding between employees and owners of both organizations.

12. Profile clients internally. Each of the organizations will have their own Top 10 clients. All of the members of the new/combined firm should be aware of their predecessor’s Top 10 list, and understand the longevity of the relationship, the importance of the client and the prominence, if any, within an industry. Being aware of the top clients will allow multiple interested parties within the organization to have their ears to the ground for any potential top client dissension or dissatisfaction.

13. Stratify clients with a grading system. Every firm will have clients who are graded on a scale from A to D. Once the firms are combined, the grading should be recalibrated. Resource allocation becomes even more critical through a transition. Confirmation that prioritizing clients is based on an agreed-upon scale will lower tensions and enhance achievement within the organization.

14. Transition relationships tactfully. Some combinations are going to be driven by exit/succession requirements of a practitioner. Others may be driven by resource requirements, or a combination of factors. For those exit-oriented combinations, it is essential to keep the former partner-in-charge involved in the relationship with the new partner-in-charge. Depending on the frequency of client contact, the migration from one custodian to the next will take on a different timeline. Furthermore, the target date for retirement or scale-back is an important factor as well. Creating the relationship-building process early will bring significant benefits, no matter when the retirement or scale-back occurs. Including the partner from the previous firm in the relationship will create client comfort, especially when that partner is supportive of the new/expanded team. Scripting approaches for both the new and previous partner can be helpful and effective.

15. Emphasize care and caring. Post-closing operations must be conducted at a higher level than normal. Clients will naturally be concerned that a larger firm will mean that they are less important and that client service will be less impressive. Upgrade client response time and, if you currently do not have a policy in place, create one. Examples of possible programs include: phone calls returned the same day or sooner, automatic email reply, call-in hours, post-conference executive memos and phone call follow-up. Staff will also be concerned about job security. Create a career goals program and an owner-driven employee interface routine.

Depending on the type of transaction you are pursuing, the priorities of transition and integration will differ. Exit-oriented transactions will have a different timeline than strategic and/or lateral transactions. The challenges of a strategic merger and a merger of equals typically require much more planning and lead time than a conventional exit-oriented deal.

Change can be very exciting but it can also be worrisome and uncomfortable. Every merger/acquisition/combination will bring change. The more time that goes into planning for these changes, and the more input, the better received the changes will be, with minimal fallout. Creating a checklist of process actions or turning to an expert who has experience navigating these transitions will help you create a specific integration plan that will result in a very positive and successful migration. Effective communication and enthusiastic pitching of the transaction, along with sensitivity to the concerns of the players (including clients, owners, and staff), will set the stage for a “happily ever after” post-closing reality.

Mergers, like marriages, are very significant commitments, and businesses like to see a healthy return on their investment for these commitments. Accounting firms are businesses like any other, although many will say that CPA firm mergers are a business unto themselves. The bottom line is that you should invest your time well in planning, monitoring and integrating the transaction, as these are the keys to making your negotiations worthwhile and producing the best, long-term return on investment for all involved parties.

Ira S. Rosenbloom, CPA, is the chief operating executive of Optimum Strategies, LLC, a consulting firm focused on helping small and medium-sized CPA firms enhance business performance, increase profitability and foster practice continuity. Contact him at [email protected].